Five commodity price spikes that keep solar costs high


If you build it, the innovators will come. Solar has become a metaphor for how investment can attract development to expensive renewable technology. Research and development then cause prices to fall, and the virtuous circle can quickly cause prices to collapse.

This variation on Moore’s law is true in solar development: Since 2000, the price per kilowatt hour has fallen exponentially. Some measurements show a drop of 89% in ten years. Even since 2016, the median cost of solar installations over 10 MW in the UK has fallen by 25%.

Solar power is often the cheapest source of energy and analysts expect its price to continue to fall. recent from DNV Outlook for energy transition expects costs to halve again by 2050. But now the dramatic drop in prices has started to slow, with the price of several basic materials rising.

Over the past year, some modules have become 25% more expensive, with raw material prices driving up the cost of the energy transition. a analysis by Rystad Energy suggests that prices could threaten 50 GW of solar developments planned for 2022; »56% of total planned development. Analysts also point to the 500% increase in shipping costs as a contributing factor.

Supply chains have only just started showing the effects of the disruption of Covid-19, which is bearing some of it. However, some prices have tended to rise for years and could prevent solar costs from falling as they rise more and more.

Silver Price Flickers Up With Demand For Solar Metal

Almost all solar panels rely on silver components, despite efforts by engineers to minimize the use of the precious metal. Silver’s high electrical conductivity makes it an excellent material for electrodes, and silicon wafers coated with silver powder are often the basis of conventional photovoltaic cells.

However, these come at a cost. In 2020, when solar investments fell due to the pandemic, solar PV installations were still using 3,100 tons of money. This marked a 2% increase over the previous year and around 10% of the total global silver supply in 2020. After years of slow increases, the Silver Institute is waiting Demand for photovoltaic silver will reach its highest level ever this year.

At the same time, new solar models attempt to minimize the use of money to make manufacturing costs more reliable. In recent years, the price of silver has varied enormously. Last year, prices hovered between $ 12 an ounce and $ 30 an ounce in six months as Covid-19 exacerbated price instability. More broadly, silver prices have gradually increased, dragging manufacturing costs with them. From the lows of the millennium to less than $ 5 an ounce, silver has rarely dropped below $ 15 since 2007.

Solar is the engine of the polysilicon market and is the most exposed to its price

As mentioned, the overwhelming majority of solar panels rely on polysilicon, known as polysilicon. The material is a type of semiconductor and is abundant in the earth’s crust, so the price is only determined by the processing capacity. This has increased dramatically over the past three decades, mainly to accommodate the tremendous expansion of the solar industry.

Other semiconductor innovations have also demanded more polysilicon over time, but nowhere near as much as solar. Between 1995 and 2014, silicon demand in solar cells increased more than 160 times. Solar has become the main consumer of polysilicon, driving 90% of demand from material suppliers. Polysilicon manufacturing has grown to accommodate this, but in doing so, suppliers have resorted to unethical measures.

In 2020, China produced 77% global polysilicon. Specifically, much of it comes from the Xinjiang region, where the country engages in slavery and other human rights abuses as part of an ethnic purge of local Uyghur Muslims.

In response, solar industry bodies have committed to cleaning up the supply chain. The United States has enacted trade sanctions against companies implicated in human rights abuses, forcing importers to source more expensive materials elsewhere. Both of these measures came into effect relatively recently, and there is still work to be done to eliminate slavery from supply chains.

Supply chain reforms have contributed to a global supply shortage, but again the root cause is Covid-19. The interruption of semiconductor manufacturing lines has caused a ‘boost effect’ of greater disruption further down the supply chain. Since mid-2020, polysilicon prices have more than tripled. From September, most of China experienced power outages due to power shortages, which did not improve the situation.

Aluminum feels the bite of power shortages

Aluminum has high conductivity, which allows it to replace silver in some applications. This has led some solar power producers to replace silver components with twice the amount of aluminum while saving money with the cheaper metal.

However, although aluminum remains relatively inexpensive, its cost has increased rapidly since the start of the pandemic in April 2020. From a low of $ 1,460 per tonne, prices have doubled to over $ 3,000 per tonne. tonne. The current 13-year peak is well above pre-pandemic prices, which have remained around $ 2,000 per tonne since 2016.

The disruption of Covid-19 had a direct impact on prices, but also caused several indirect problems in the supply chain.

Refining aluminum requires huge amounts of electricity, while many highly industrialized countries face power shortages. This electricity consumption makes aluminum very emitting emissions, which raises concerns in the era of environmental taxes. The movement to reduce global carbon emissions has also rapidly increased the demand for aluminum in solar and wind production.

Magnesium Shortage Raises Steel Price As Semiconductors Push The Other Way

The basic framework of many solar panels is based on steel, both for its rigidity and its price. As an industry, steel has struggled with the growth of cheap Chinese products. This has shifted much of the production to China, weakening the market during the pandemic.

Steel comes in many forms, but some have more than tripled since the global appearance of Covid-19. Market experts have said they expect prices to continue to rise until 2022, with consequences for steel costs. In the United States, massive buyouts have consolidated the market into a duopoly, aggravating competition and prices. In India, local steel prices have increased by more than 50%, while British Steel has price increase more than 40%.

Steel production relies on a steady supply of magnesium, 87% of which comes from factories in China. Industrial disruption drove steel producers across the world to it at the edge to stop production. This has already had an effect on prices, but the biggest effect will come later.

Ironically, the semiconductor shortage actually helped steel prices by reducing auto production. Once semiconductor production increases, so will automobile production, consuming more steel and causing further price hikes.

“Bridging the copper divide will require an investment of 325 billion dollars”

Electricians have been using copper cables since the discovery of electricity due to the high conductivity of metal. In industrial applications, copper remains the material of choice for transformers, inverters and some high voltage cables.

This has made it a key material in the construction of solar farms. A well-designed solar power plant could use around four tonnes of copper per MW of peak capacity. The energy transition as a whole has become the world’s leading user of copper, with about 60% supplies for electric vehicles, transmission infrastructure, wind and solar power.

Copper’s range of uses makes it a valuable material, but prospectors have found few new deposits to replace the depleting mines. Investment bank Citigroup estimates that demand for copper will exceed production by 521,000 tonnes this year. This deficit will continue to widen with the acceleration of the energy transition, pushing the price of solar upwards.

Julian Kettle, Vice President of Metals at WoodMackenzie Analysts, believes that: “Without additional substantial investment, production will drop from 2024. Coupled with the growth in demand, this drop in production will lead to a theoretical deficit of around 16 million tonnes by 2040. Closing this gap requires investment in the order of an additional $ 325 billion.

This production shortfall and speculation about the growing demand for copper from renewables have driven price hikes this year. While copper prices have risen and fallen since the millennium, in 2021 they have mounted much faster than before.

Economic analysts believe this could mark the start of a long-term rise in the price of copper. This would only reverse when most of the construction and development of the clean energy transition is complete.

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